An activating mutation in the ras oncogene accomplishes initiation of skin carcinogenesis. Primary keratinocytes expressing the v-Ha-ras oncogene, introduced by a defective retroviral vector, exhibit an altered response to signals for terminal differentiation in cell culture and produce squamous papillomas when grafted onto nude mice. Since protein kinase C (PKC) inhibitors restored the differentiation response in Ha-ras- keratinocytes, Ha-ras-induced alterations in keratinocyte differentiation are the result of chronic activation of PKC. Of the 5 PKC isozymes expressed in Ha-ras-keratinocytes, only PKCdelta is tyrosine phosphorylated, resulting in decreased PKCdelta activity. Pharmacological modulation of the PKC pathway may provide an approach to reversal of the neoplastic phenotype. Staurosporine, a PKC inhibitor but functional PKC agonist in keratinocytes, induces cornification of neoplastic human and mouse keratinocytes. Staurosporine bypasses the block of terminal differentiation in neoplastic cells by increasing transglutaminase expression and by reducing PKCdelta tyrosine phosphorylation. The induction of keratins 8 and 18 (K8 and K18) in v-Ha-ras keratinocytes is mediated by TGF-alpha which is secreted into the culture medium. K8 expression in neoplastic keratinocytes is regulated by EGF receptor ligands; cytokines may be the physiological mediators of K8/K18 expression in embryonic cells. Studies with Ha-ras-infected keratinocytes from transgenic mice with null mutations in either the p53 or TGF-beta1 genes have demonstrated that loss of either p53 or TGF-beta1 protein in combination with a mutant Ha-ras gene is associated with the malignant conversion stage of epidermal carcinogenesis. Loss of TGF-beta expression, coupled to expression of the alpha6beta4 integrin complex, K8 and gamma-glutamyltranspeptidase, may serve as early predictive markers to identify benign skin tumors at high risk for progression to malignancy. Inbred SENCAR mice are approximately twice as sensitive as outbred SENCAR mice to both papilloma and carcinoma development. The F1 mice resulting from mating of SENCAR A to resistant BALB/c mice resemble the resistant parent, developing very few papillomas after initiation by DMBA and promotion by TPA. The resistant phenotype is dominant in this cross.